Wachovia Takes Round 1 of the Citi-Wachovia Fracas

Remember when the stock market was tanking last fall and troubled financial firms were being scooped up by rivals?

We do, and so does Citigroup, which was about to scoop up the banking operations of one such firm — Wachovia — only to see its merger agreement torn up when Wells Fargo stepped in a few days later to buy all of Wachovia.

Feeling betrayed, Citigroup filed some suits. (Prior LB coverage here.) Yesterday, however, Citigroup — which needed a bailout following the failed merger — got some bad news about one of those suits.

The suit sought to resolve the question of whether the exclusivity agreement reached between Citi and Wachovia on Sept. 29 enabled Citi to collect damages against Wachovia for leaving it at the alter and hooking up with Wells Fargo.

In a ruling made public on Wednesday, U.S. District Judge Shira Scheindlin in Manhattan said “no.” She found that a section of the Bailout Bill, passed on Oct. 2 — the same day Wells Fargo snagged Wachovia — rendered the exclusivity agreement between Citigroup and Wachovia unenforceable. A provision of the Bailout Bill says, in essence, that there shall be no liability against a third party (in this case Wells Fargo) for having acquired a target (Wachovia) that previously reached an exclusivity agreement with someone else (Citigroup).

“Because Wells Fargo acquired all of Wachovia, imposing liability on Wachovia would be equivalent to penalizing Wells Fargo,” the judge said. Citigroup says it will appeal.

Separately, Citigroup still has a suit in state court alleging that Wells interfered with the merger talks and seeking damages. That case has been stayed until Oct. 1, according to the WSJ story.

About Law Blog

The Law Blog covers the legal arena’s hot cases, emerging trends and big personalities. It’s brought to you by lead writer Jacob Gershman with contributions from across The Wall Street Journal’s staff. Jacob comes here after more than half a decade covering the bare-knuckle politics of New York State. His inside-the-room reporting left him steeped in legal and regulatory issues that continue to grab headlines.

Must Reads

Plaintiffs' lawyers dodged a bullet last year when the U.S. Supreme Court spared a quarter-century-old precedent that had served as the legal linchpin of the modern investor class-action case. Despite that win, a new report suggests that securities class actions have lost some of their firepower.

In a week in which images of Prophet Muhammad were connected to acts of terror and defiant expressions of freedom, a sculpture of the prophet of Islam inside the U.S. Supreme Court has drawn little notice.

Alan Dershowitz has vowed to slap a defamation suit against the two lawyers who claimed in a court document that Florida financier Jeffrey Epstein arranged sexual liaisons for him with an underage prostitute. Those lawyers have beaten him to the punch.

The salacious allegations against Prince Andrew and Alan Dershowitz that surfaced in a federal lawsuit involving convicted sex offender Jeffrey Epstein have generated international attention. Drawing less coverage is the lawsuit itself -- a case with the potential to expand the rights of crime victims during federal investigations.